Health care Goliaths are cutting out the middleman. The American health care system is full of intermediaries chasing after a share of the industry’s profit, often by gaming one another. UnitedHealth’s $4.9 billion purchase of a physicians group from DaVita is the latest example of trying to cut costs by eliminating such links in the chain.
The health care system in the United States is akin to one of Rube Goldberg’s zany cartoon contraptions. America spends far more than other countries on treating or preventing ailments, yet with mediocre outcomes. It also ranks worst among 11 industrialized countries in the percentage allocated to administration, the time doctors need to receive insurer approval for treatments, and how long patients spend disputing costs, according to a 2014 Commonwealth Fund study.
The multiplicity of players — drugmakers, doctors, pharmacies, pharmacy benefit managers, insurers, wholesalers and hospitals — means lots of hands trying to grab money from other participants. Opacity only increases the opportunity for creative billing. That’s one reason support staff increased to 16 in 2012 from 14 per physician in 1990, according to a Harvard Business Review study.
UnitedHealth’s acquisition gives it nearly 300 clinics serving 1.7 million patients. The unit did lose $104 million last year. But past forays into other parts of the health care chain have gone well. The insurer’s Optum division, which offers a variety of services including drug benefits and doctor visits, has steadily grown its top and bottom lines. Putting multiple health businesses together should mean fewer disputes and reduce attempts by one business to take revenue from another.
This model is spreading, as evidenced by CVS’s $77 billion deal earlier this week to acquire Aetna. That combines an insurer, pharmacy chain and drug-benefit business under one roof.
Whether people will be happy being shunted into their insurer’s pharmacies or physician groups isn’t clear. A somewhat similar attempt to control costs in health maintenance organizations in the 1990s managed to alienate both doctors and patients alike. Doctors hated the lack of autonomy and patients the lack of choice. The sharp increase in health care costs since then, to 18 from 12 percent of GDP, may give this attempt legs. If it can’t, having the government vertically integrate health care may become an increasingly attractive option.